Question 1

If the financial markets are efficient then:

Accepted Answer

A)  stock prices should remain constant.
B)  stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets.
C)  an increase in the value of one security should be offset by a decrease in the value of another security.
D)  stock prices will change only when an event actually occurs, not at the time the event is anticipated.
E)  stock prices should respond only to unexpected news and events.F) B) and E)
G) C) and D)

Question 2

A stock has returns for five years of 14 percent,-16 percent,12 percent,23 percent,and 4 percent,respectively.The stock has an average return of ______ percent and a standard deviation of _____ percent.

Accepted Answer

A)  7.40; 13.54
B)  7.04; 14.63
C)  7.40; 14.72
D)  8.60; 14.63
E)  8.60; 16.36F) C) and E)
G) A) and B)

Question 3

If the financial markets are semistrong form efficient,then:

Accepted Answer

A)  only the most talented analysts can determine the true value of a security.
B)  only individuals with private information have a marketplace advantage.
C)  technical analysis provides the best tool to use to gain a marketplace advantage.
D)  no one individual has an advantage in the marketplace.
E)  every security offers the same rate of return.F) C) and D)
G) A) and C)

Question 4

Which one of the following best describes an arithmetic average return?

Accepted Answer

A)  Total return divided by N- 1, where N equals the number of individual returns
B)  Average compound return earned per year over a multiyear period
C)  Total compound return divided by the number of individual returns
D)  Return earned in an average year over a multiyear period
E)  Positive square root of the average compound returnF) A) and B)
G) A) and E)

Question 5

For the period 1926-2014,which one of the following had the smallest risk premium?

Accepted Answer

A)  Large-company stocks
B)  Small-company stocks
C)  Long-term corporate bonds
D)  U.S.Treasury bills
E)  Long-term government bondsF) A) and E)
G) A) and C)

Question 6

Based on the past 88 years,the inflation rate averaged 3.0 percent and the U.S.Treasury bill yield was 3.5 percent,and the historical risk premium on small-company stocks was 13.2 percent.If these averages hold,what nominal rate of return should you expect to earn on small-company stocks over the next several years?

Accepted Answer

A)  15.5 percent
B)  16.7 percent
C)  19.7 percent
D)  13.5 percent
E)  13.7 percentF) C) and D)
G) A) and B)

Question 7

Which one of the following had a zero standard deviation of returns for the period of 1926-2014?

Accepted Answer

A)  All of the listed security types had a standard deviation of returns in excess of zero percent.
B)  U.S.Treasury bills
C)  Long-term corporate bonds
D)  Large-company stocks
E)  Long-term government bondsF) A) and B)
G) C) and D)

Question 8

Which one of the following statements is correct?

Accepted Answer

A)  The risk-free rate of return has a risk premium of 1.0.
B)  The reward for bearing risk is called the standard deviation.
C)  Risks and expected return are inversely related.
D)  The higher the expected rate of return, the wider the distribution of returns.
E)  Risk premiums are inversely related to the standard deviation of returns.F) B) and C)
G) B) and D)

Question 9

Cox Footwear pays a constant annual dividend.Last year,the dividend yield was 3.2 percent when the stock was selling for $35a share.What is the current price of the stock if the current dividend yield is 2.9 percent?

Accepted Answer

A)  $18.92
B)  $38.62
C)  $25.20
D)  $26.87
E)  $27.40F) All of the above
G) C) and D)

Question 10

You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year,you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent on this stock.

Accepted Answer

A)  -25.2; 48.2
B)  -27.8; 57.0
C)  -42.4;57.0
D)  -43.6; 49.4
E)  -38.4; 42.6F) B) and E)
G) A) and E)

Question 11

A stock produced returns of 14 percent,17percent,and -1 percent over three of the past four years,respectively.The arithmetic average for the past four years is 6 percent.What is the standard deviation of the stock's returns for the four-year period?

Accepted Answer

A)  11.63 percent
B)  15.94 percent
C)  9.70 percent
D)  6.25 percent
E)  11.23 percentF) D) and E)
G) None of the above

Question 12

Over the period of 1926-2014:

Accepted Answer

A)  the risk premium on large-company stocks was greater than the risk premium on small- company stocks.
B)  U.S.Treasury bills had a risk premium that was just slightly over 2 percent. 
C)   the risk premium on long-term government bonds was zero percent.
D)  the risk premium on stocks exceeded the risk premium on bonds.
E)  U.S.Treasury bills had a negative risk premium.F) A) and C)
G) C) and E)

Question 13

When,if ever,will the geometric average return exceed the arithmetic average return for a given set of returns?

Accepted Answer

A)  When the set of returns includes only risk-free rates
B)  When the set of returns has a wide frequency distribution
C)  When the set of returns has a very narrow frequency distribution
D)  When all of the rates of return in the set of returns are equal to each other
E)  NeverF) C) and E)
G) B) and C)

Question 14

Assume that last year,Isaac earned 13.6 percent on his investments while U.S.Treasury bills yielded 2.7 percent,and the inflation rate was 2.2 percent.What real rate of return did he earn on his investments last year?

Accepted Answer

A)  11.63 percent
B)  11.15 percent
C)  13.56 percent
D)  12.24 percent
E)  10.39 percentF) A) and D)
G) B) and D)

Question 15

Over the period of 1926-2014,which one of the following investment classes had the highest volatility of returns?

Accepted Answer

A)  Large-company stocks
B)  U.S.Treasury bills
C)  Small-company stocks
D)  Long-term corporate bonds
E)  Long-term government bondsF) A) and B)
G) A) and C)

Question 16

A security produced returns of 12 percent,-11 percent,-2 percent,15 percent,and 9 percent over the past five years,respectively.Based on these five years,what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Accepted Answer

A)  50 percent
B)  1.00 percent
C)  1.25 percent
D)  2.50 percent
E)  5.00 percentF) B) and E)
G) D) and E)

Question 17

One year ago,LaTresa purchased 300 shares of Outland Co.stock for $7,092.The stock does not pay any regular dividends but it did pay a special dividend of $.43 a share last week.This morning,she sold her shares for $24.05 a share.What was the total percentage return on this investment?

Accepted Answer

A)  7.67 percent
B)  4.83 percent
C)  2.50 percent
D)  3.55 percent
E)  8.24 percentF) B) and D)
G) None of the above

Question 18

The lower the standard deviation of returns on a security,the _____ the expected rate of return and the _____ the risk.

Accepted Answer

A)  lower; lower
B)  lower; higher
C)  higher; lower
D)  higher; higherE) B) and D)
F) A) and B)

Question 19

Dan is a chemist for ABC,a major drug manufacturer.Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

Accepted Answer

A)  weak form efficient.
B)  strong form efficient.
C)  semistrong form efficient.
D)  efficient at any level.
E)  aware that the trader is an insider.F) A) and D)
G) B) and D)

Question 20

Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment?

Accepted Answer

A)  Without the size of an investment, the dollar return has less value than the percentage return.
B)  The dollar return is more accurate than the percentage return because the dollar return includes dividend income while the percentage return does not.
C)  The dollar return considers the time value of money while the percentage return does not.
D)  Dollar returns are based on capital gains while percentage returns are based on the total rate of return.
E)  Dollar returns must either be zero or a positive value while percentage returns can be negative, zero, or positive.F) A) and D)
G) B) and D)

Exam 10: Some Lessons From Capital Market History

A stock has returns for five years of 14 percent,-16 percent,12 percent,23 percent,and 4 percent,respectively.The stock has an average return of __ percent and a standard deviation of _ percent.

Correct Answer
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Cox Footwear pays a constant annual dividend.Last year,the dividend yield was 3.2 percent when the stock was selling for $35a share.What is the current price of the stock if the current dividend yield is 2.9 percent?

Correct Answer
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Correct Answer
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You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year,you have a 95 percent chance that you will not lose more than _ percent nor earn more than percent on this stock.

Correct Answer
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Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment?

Correct Answer
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One year ago,LaTresa purchased 300 shares of Outland Co.stock for $7,092.The stock does not pay any regular dividends but it did pay a special dividend of $.43 a share last week.This morning,she sold her shares for $24.05 a share.What was the total percentage return on this investment?

Correct Answer
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Assume that last year,Isaac earned 13.6 percent on his investments while U.S.Treasury bills yielded 2.7 percent,and the inflation rate was 2.2 percent.What real rate of return did he earn on his investments last year?

Correct Answer
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Which one of the following best describes an arithmetic average return?

Correct Answer
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When,if ever,will the geometric average return exceed the arithmetic average return for a given set of returns?

Correct Answer
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Which one of the following had a zero standard deviation of returns for the period of 1926-2014?

Correct Answer
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The lower the standard deviation of returns on a security,the _ the expected rate of return and the _ the risk.

Correct Answer
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If the financial markets are efficient then:

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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Dan is a chemist for ABC,a major drug manufacturer.Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

Correct Answer
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Over the period of 1926-2014,which one of the following investment classes had the highest volatility of returns?

Correct Answer
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Over the period of 1926-2014:

Correct Answer
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A stock produced returns of 14 percent,17percent,and -1 percent over three of the past four years,respectively.The arithmetic average for the past four years is 6 percent.What is the standard deviation of the stock's returns for the four-year period?

Correct Answer
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For the period 1926-2014,which one of the following had the smallest risk premium?

Correct Answer
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If the financial markets are semistrong form efficient,then:

Correct Answer
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A security produced returns of 12 percent,-11 percent,-2 percent,15 percent,and 9 percent over the past five years,respectively.Based on these five years,what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Correct Answer
verified

Exam 10: Some Lessons From Capital Market History

A stock has returns for five years of 14 percent,-16 percent,12 percent,23 percent,and 4 percent,respectively.The stock has an average return of ______ percent and a standard deviation of _____ percent.

Correct AnswerverifiedShow Answer

Cox Footwear pays a constant annual dividend.Last year,the dividend yield was 3.2 percent when the stock was selling for $35a share.What is the current price of the stock if the current dividend yield is 2.9 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year,you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent on this stock.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment?

Correct AnswerverifiedShow Answer

One year ago,LaTresa purchased 300 shares of Outland Co.stock for $7,092.The stock does not pay any regular dividends but it did pay a special dividend of $.43 a share last week.This morning,she sold her shares for $24.05 a share.What was the total percentage return on this investment?

Correct AnswerverifiedShow Answer

Assume that last year,Isaac earned 13.6 percent on his investments while U.S.Treasury bills yielded 2.7 percent,and the inflation rate was 2.2 percent.What real rate of return did he earn on his investments last year?

Correct AnswerverifiedShow Answer

Which one of the following best describes an arithmetic average return?

Correct AnswerverifiedShow Answer

When,if ever,will the geometric average return exceed the arithmetic average return for a given set of returns?

Correct AnswerverifiedShow Answer

Which one of the following had a zero standard deviation of returns for the period of 1926-2014?

Correct AnswerverifiedShow Answer

The lower the standard deviation of returns on a security,the _____ the expected rate of return and the _____ the risk.

Correct AnswerverifiedShow Answer

If the financial markets are efficient then:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Dan is a chemist for ABC,a major drug manufacturer.Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

Correct AnswerverifiedShow Answer

Over the period of 1926-2014,which one of the following investment classes had the highest volatility of returns?

Correct AnswerverifiedShow Answer

Over the period of 1926-2014:

Correct AnswerverifiedShow Answer

A stock produced returns of 14 percent,17percent,and -1 percent over three of the past four years,respectively.The arithmetic average for the past four years is 6 percent.What is the standard deviation of the stock's returns for the four-year period?

Correct AnswerverifiedShow Answer

For the period 1926-2014,which one of the following had the smallest risk premium?

Correct AnswerverifiedShow Answer

If the financial markets are semistrong form efficient,then:

Correct AnswerverifiedShow Answer

A security produced returns of 12 percent,-11 percent,-2 percent,15 percent,and 9 percent over the past five years,respectively.Based on these five years,what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Correct AnswerverifiedShow Answer

A stock has returns for five years of 14 percent,-16 percent,12 percent,23 percent,and 4 percent,respectively.The stock has an average return of __ percent and a standard deviation of _ percent.

Correct Answer
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You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year,you have a 95 percent chance that you will not lose more than _ percent nor earn more than percent on this stock.

Correct Answer
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The lower the standard deviation of returns on a security,the _ the expected rate of return and the _ the risk.

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